Life insurance is not just a financial protection instrument for your family, it is an investment. It is a necessity in these times and a life insurance policy can offer you various benefits. There are different kinds of insurance plans that you can buy from public and private sector insurance companies.
ULIP is short for Unit-linked Insurance Plan. The products that integrate both insurance and investment in the scheme features are categorized as Unit-linked Insurance Plans.
How Does It Work?
ULIP UTI was the first, though a lot of insurance companies today offer these schemes to their customers and serve the investment needs. Often, these companies have different variants under the category, but the basic principle of working of each plan is the same.
With a ULIP – Unit-linked Insurance Plan, you get a combination of insurance and mutual funds. When you buy such a product, a stipulated amount of premium is set by the company that is to be paid by you. This premium is then divided into 2 parts, one each for insurance and investment.
The money from various customers is then pooled by the ULIP managers and invested in market securities. These securities can be equity, equity related instruments, money market debts, etc. Essentially, the portion of your premium that goes towards investment can be treated as a mutual fund holding.
Features Of The Best ULIP Plans
- The policyholders are given ‘units’ and they can check regularly updated Net Asset Value of the investment
- Based on your age, income and risk capacity, you can calculate the best option available through a ULIP calculator
- A ULIP provides all the covers of life insurance, viz. death benefit, maturity benefit, and in some plans, extra riders
- The beneficiaries get the sum assured and fund value in case of the demise of the policyholder
Things To Consider While Buying
A regular life insurance is a safe investment for the future, but there is no scope of growth. But when it comes to the top insurance company products like ULIP LIC and ULIP ICICI, you can get a good return on your investment. However, the investment works almost like in a mutual fund and the returns vary according to the market conditions. Therefore, plans need to be carefully considered while buying. Also, there are certain fees applicable like withdrawal charges and fund allocation charges. Investing in a ULIP also brings you tax savings under section 80C.
Every company designs its own plans that can be beneficial for their customers, hence the inclusions vary. For example, the inclusions of Smart Wealth Assure, which is a SBI ULIP plan, are a 15 day trial period, 2 free switches per year and partial withdrawal.
ULIP Vs Mutual Fund
Through a ULIP, the policyholders can decide the investment asset class themselves. They also have the option to switch from one fund to another, multiple times in a year. They can also set and adjust the proportion in which they want their money invested. Therefore, if you have 30% in equity and 40% in debts, you can increase the equity to 50%. This is an option which mutual funds do not provide.
The money invested in a ULIP is locked up for a number of years initially, usually 5 years. This is not the case with mutual funds and the customers can sell off the units whenever they want.
Which Plan To Invest In?
You can check out the plans by all the top insurance providers of India as all of them have their own unique plans. On the basis of purpose, you can find Unit-linked Insurance Plans for wealth collection, for retirement, for child’s education, etc.
While buying a policy, check if transparent and specific information about the features, structure and charges has been given. Some plans have additional coverage options while others are basic. Also, have a detailed data about what charges are applicable and what is the maximum investment.
The policybazaar website has a list of best ULIP plans in India 2016, which has been compiled after extensive research.
Who Should Invest?
These products have varying risk profiles. They are ideal for those who want to take risks to increase their wealth while keeping some money safe. A ULIP is an insurance product that is beneficial in the long run. Therefore, it is suited for those who are looking for the Best Long Term Investment Plans.